Jeremy Burkhardt, the colorful former owner and president of SpeakerCraft, is suing that company and parent company Nortek Inc. (Nasdaq: NTK), as well as Nortek subsidiary Linear LLC (formerly Linear Corp.), under which SpeakerCraft operated as a subsidiary.

CE Pro learned of the suit from a Facebook post by Burkhardt today:

Really exciting walking around CES and seeing so many friends. Also heard a lot of noise about Nortek and my non-compete I honored that as promised and it expired long ago. I’ll be back and they can’t stop me. I’m serious enough that Jeff Francisco and I have sued Nortek in Orange County to clear out the nonsense. Details on the CA courts website, case id 30-2012-00610919-CU-NP-CJCnon-compete. We tried to settle but they want to screw off try and out spend us and not do the right thing. I hope to tell you about the company we are buying real soon. Some people think Nortek sucks. We will take market share from them as we’ll as share all their mis doings with the industry and press. I pledge my every last dollar to righting their misdeeds.

Francisco is not named as a plaintiff in the suit, but he was an equity shareholder in SpeakerCraft when the company was acquired by Nortek in 2003. As such, he may also be subject to litigation over non-compete clauses, and damaged financially by the mere threat of legal action. He resigned from SpeakerCraft late in 2012, a few months after Burkhardt resigned.

Reached by phone, Burkhardt chose not to comment on the record about the suit.

The purchase agreement included a non-competition and non-solicitation provision, according to the lawsuit filed on Nov. 9, 2012, in the Superior Court of California, Orange County.

Burkhardt is claiming, first, that the non-compete was unenforceable to begin with and, second, that it has expired in any case.

He says in the lawsuit that Nortek insists the non-compete is legal and still in play, and that the corporation is threatening to sue if Burkhardt indeed competes at this time. Burkhardt says this looming threat has harmed him economically because not only does he fear launching a competitive business, but employers fear hiring him:

The mere existence of a non-competition agreement is enough to persuade many employers not to hire qualified applicants because of the fear that by hiring such an individual, they will be hiring an expensive and disruptive lawsuit.

Burkhardt seeks compensation for this economic loss, and punitive damages because “Defendants’ acts and omissions were intentional, malicious and oppressive, and were done with the intent and design to damage Plaintiff.”

In addition to these claims, Burkhardt charges in the suit that Nortek owes him $1 million – the amount he reinvested into Nortek when SpeakerCraft was acquired, and the amount allegedly promised to him when he lost it all in a 2009 Nortek bankruptcy.

Non-compete is Illegal and Expired

California is a tougher state than most for non-compete clauses, with a “strong fundamental public policy favoring open competition and disfavoring restrictive covenants.” (WSGR)

For example, employees cannot be beholden to non-competes; only equity stakeholders can, and only in limited situations.

Policy on restrictive covenants is governed by the Business & Professions Code Section 16600, which notes, “Every contract by which anyone is restrained from engaging in a lawful profession, trade or business of any kind is to that extent void.”

There is a notable exception in Section 16601: When a business owner sells his company, a non-compete may be enforceable to protect the goodwill acquired by the buyer; however, “the contract for sale of the corporate shares may not circumvent California’s deeply rooted public policy favoring open competition.” Hill Med Corp. v. Wycoff, Cal. App. 4th 895, 903 (2001).

Even if Burkhardt’s non-compete were enforceable at some point, the terms of the agreement have expired, he claims in the suit.

The period designated for the non-compete was the longer of five years since signing in 2003, or three years after “the date of the termination of employment of the applicable Management Seller as an employee of the Buyer [Linear Corporation].”

But Burkhardt argues that he never actually became an employee of Linear Corp.

“Thus, by its terms, the Non-Compete expired on July 11, 2008, five years after the Closing Date of the sale of SpeakerCraft, Inc. to Linear Corporation.”

Burkhardt worked for SpeakerCraft Inc., until December 2009, according to the lawsuit, “when the corporation ceased to exist as the result of the bankruptcy of Nortek and its subsidiaries.”

At that time, Nortek formed SpeakerCraft LLC, which purchased the assets of SpeakerCraft, Inc., from the bankruptcy estate.

Thereafter, Mr. Burkhardt was employed by SpeakerCraft, LLC as its President. Mr. Burkhardt has never been employed by Linear Corporation, Linear LLC, or Nortek, Inc.”

Second Claim: $1 Million Owed

The non-compete issues are just one claim in Burkhardt’s lawsuit. The second is that Nortek owes him $1 million, allegedly promised to him by former Nortek chairman Richard Bready (not named in the suit except as “Chairman”). That was the amount that Burkhardt was asked or volunteered to reinvest in Nortek after SpeakerCraft was acquired.

Burkhardt alleges he lost that investment when Nortek declared bankruptcy in 2009 but that Bready promised to compensate him for the loss.

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About the Author

Jason Knott, Editor, CE Pro

Jason has covered low-voltage electronics as an editor since 1990. He joined EH Publishing in 2000, and before that served as publisher and editor of Security Sales, a leading magazine for the security industry. He served as chairman of the Security Industry Association’s Education Committee from 2000-2004 and sat on the board of that association from 1998-2002. He is also a former board member of the Alarm Industry Research and Educational Foundation. He is currently a member of the CEDIA Education Action Team for Electronic Systems Business. Jason graduated from the University of Southern California.

19
Comments
(displayed in order by date/time)

Posted by TedG on 01/18 at 12:00 PM

First of all - congratulations Jason - this is one of the finest pieces of journalism I’ve ever seen in CEPro. Detailed, thoughtful, well-considered…a solid piece.

I would say Burkhardt stands in good stead given that Californian courts have a well-earned reputation for looking down at restrictive non-competes. In New Jersey, I’m afraid his chances would be greatly diminished.

However, his claim of $1 million owed based on a verbal agreement with the former chairman is shaky at best. Unless he can provide some proof - such as a disinterested third party who witnessed, or at least overheard said agreement.

But at the end of the day, it is safe to say that Nortek most likely has far more resources to drag this litigation out for years, should they want to. Trust me, I have some experience in this regard.

Some companies actually base their competitive strategy on litigating their opponents into oblivion. Should Nortek rise to the challenge - and assuming there is some serious bad blood on their end - this will drag on for at least three or four years.

On the other hand, if Nortek takes a business viewpoint here, they will likely offer to settle by releasing Burkhardt from the non-compete. This is probably what Jeremy wants anyway.

Ahhh the spoiled brat American way. A guy wants to reneg on a contract he obviously had no problems with signing years ago when they were tossing cash at him, then makes a bad investment decision and invests in that company that went bankupt. He later gets fired from that company because he poorly managed it for years, and now wants a bunch of cash from them? Wahhhh…

Posted by Jeremy Burkhardt on 01/18 at 02:49 PM

Jeff,

I don’t know you but, read the documents. I did not renig in fact I stayed nine yeas after I sold the company. I didn’t get fired, ask anyone at Nortek or Core brands I was the performer that didnt want the helm of a sinking ship. With that said my email address is .(JavaScript must be enabled to view this email address), if you care to ask me any questions. law suites suck, we are dealing with American workers lives and the ability to support families. reread the story and case law. This is just the begining.

Posted by Jeremy Fan on 01/18 at 02:52 PM

Anybody want to guess WHO Jeremy is interested in buying?

Posted by Shawn Worst on 01/18 at 03:21 PM

Way to go Jeremy. You’ve always been one to stand up and tell it straight. I respect you for that. I know you will fight for what you think is right and defend yourself to the end.
You epitomize the definition of a visionary, and I’m looking forward to your “rocking the boat” with your next business venture!
All the best!

Posted by Devin Welch on 01/18 at 03:24 PM

It seems to me that Jeremy has done his obligation to Speakercraft. And I can understand not wanting to stay involved with a company that is not going in the correct direction. He was the face for Speakercraft. Non competes I know in Texas can be enforced pretty easy unless there was any sign of any type of fraud on one party. I wish Jeremy the very best and hope he can get this resolved. Lawsuits are no fun at all. I am involved with one against an insurance carrier and they seem to have real deep pockets. This industry needs Jeremy Burkhardt back out there not only as a competitor but as a voice. Best of Luck

Posted by Steve Olszewski on 01/18 at 03:26 PM

Excellent reporting. When considering passion as a driver for our industry, albeit financially motivated, which is more important for sustaining the life of our work; such passion, or hard-nosed corporate consolidation? At least Jeremy has the desire to use his money toward our industry - I’m sure he has an agenda, but he can also afford to sit on the beach.

Posted by Julie Jacobson on 01/18 at 03:27 PM

Jeremy Fan ... I’ll start a separate blog on that: Who WILL Jeremy Buy? Who SHOULD Jeremy Buy?

(and Jeremy B ... hush up now. Leave it to lawyers and courts.)

Posted by Bruce Coffman on 01/18 at 03:27 PM

Agreed - stunningly excellent article (are you sure this is CEPro?).

Typical American corporate mantra: “break the deal, screw the little guy and bleed’em dry in court”.

You go, Jeremy!

Posted by pcompton on 01/18 at 03:30 PM

Wanna know what my favorite thing to do is? I love watching somebody take a verbal smack down when they start popping off at the mouth about something they think they know about, but actually know nothing about.

Sorry Jeff, you happened to start popping off at the mouth about somebody who knows what his reputation means, and will defend it, even in a comment on CePro.

I’ve never personally purchased his past products, but if Jeremy decides to pursue something else in this industry, I’ll certainly be one of the first in line to give them a look.

Just because he straightened you out.

Posted by Flip on 01/18 at 03:36 PM

Sue ????
The NIRV.

Posted by Nirved on 01/18 at 03:50 PM

Jeremy,
Why dont you take some of that money you made and give it to all the dealers that got stuck selling your MZC systems. You know MZC the system which has broken on every single unit ever sold? Ya know…The one you can’t control from any outside control system? And the one i have had to pull out from almost all the customers houses they were installed in because they are so frustrated with them breaking?
And then of course you need to cough up some of that 58 million you got and give it to any of us guys that were promised for years that the NIRV system was going to be the system that would save all of us guys that lost so much money on the MZC systems. But instead you wait until the very last second, pull the product, then quit and run away!! Thanks for that! Nice job!
I hope Notek drags this out for 20 years.
Do us all a favor, go play with your motorcycles and get a few more piecings or tatoos…...and stay out of the home electronics business. No one wants to hear your sales pitches about how great you are and how persecuted you were and how your new company is the best.
Go play golf or something. Or go into selling something not related to electronics, your time is done, you had your 15 mins, and made tons of money. Do the right thing and go away quietly!

MZC was way ahead of it’s time in fact Apple licensed SpeakerCraft in their first ten licensees to do third party meta data integration, far before the iPod was used in this industry. Your wrong on the failure rate. SC should replace and take care of you on every problem they have. As for Nirv I didn’t want to introduce the product and ask to stop the program for years. I retired after that was shoved down my neck, it needed thousands of man hours to be made better. Again email me and Ill tell you how to get speakercraft to make you whole.

Posted by Steve S on 01/18 at 04:48 PM

Jeremy,

You are exercising your legal rights. For that, I commend you. You have lived up to your end and till the end.

let us know if you are interested in securing a quality OEM source for IR/RF related products.

Wishing you a successful outcome,

Steven A. Stambaugh
President
Infrared Resources LLC.(JavaScript must be enabled to view this email address)